Net Earnings Crush Expectations

This company's announcement earlier this week was leaps and bounds above
all the Wall Street expectations, writes MoneyShow's Jim Jubak,
also of Jubak's Picks.

The stock market liked what it heard Wednesday, August 7, from
Thompson Creek Metals (TC)
after the close in New York. Second quarter adjusted net earnings of 8 cents a
share crushed the Wall Street consensus of a penny a share. Revenue climbed 3.8%
to $117.8 million versus expectations for revenue of just $1.3.8 million. The
company also said that its new Mt. Milligan mine is on schedule with a start-up
for the concentrator expected this month, with first ore-feed by mid-August. The
company said it expects commercial production to begin in the fourth quarter of
2013, with production ramping to full capacity over the next twelve months.

All this is certainly good news for a miner that looked like it might run out
of cash before it got the Mt. Milligan mine into production. The shares were up
13.6% yesterday on the news, as of 3:00 pm New York time. Thompson Creek Metals
is a member of my long-term Jubak Picks 50 portfolio.

I think yesterday's big jump was a reaction to how far down the company's fortunes
had fallen. A revenue increase of 3.8% isn't much to write home about, unless
it's at a company that saw revenue fall 4.4% in the first quarter of 2013 from
the first quarter of 2012. Revenue at Thompson Creek fell by 40% from 2011 to
2012.

Taking a slightly longer perspective on the company's recovery—say to the end
of 2013—shows that Thompson Creek isn't quite out of the woods yet. The company
has called for lower sales of molybdenum—this isn't new guidance, just
confirmation—in the second half of the year. That, plus a 9% to 10% increase in
the company's estimate for what it will cost to finish the Mt. Milligan
facility, means that the company will draw down cash balances to roughly $80
million at the end of 2013, before they start to rise again in 2014.

That's a pretty thin margin of error for a company that has had to struggle
to raise the capital it needed to finance Mt. Milligan.

What could go wrong? Thompson Creek has announced that it will have to move a
mine wall at its Thompson Creek mine this summer, which could lower production
from the mine. Costs at Mt. Milligan could take another step upward. Copper and
gold prices—and with the beginning of production, Mt. Milligan Thompson Creek
will move from being primarily a molybdenum producer to a molybdenum/copper/gold
miner—could fall further.

I think you can see the downside here—any of that bad news could lead to
renewed worries about the company's cash resources, and a step back for the
stock.

But all these negative possibilities also mean that Thompson Creek is
leveraged like a medieval trebuchet. If the company can avoid another cash
crunch, and if copper and gold prices don't fall as far as the bears now
project—in mid-July Barclays projected a drop in copper prices from $6900 to
$6,000 at the end of 2014—then I think you're looking at a $3.26 stock turning
into a $5 stock.

In other words, if you're looking for a way to leverage a turn in copper (and
to a lesser extent, gold and molybdenum) prices, then Thompson Creek Metals is
your stock.

But leverage works both ways.

I'd call this a high-risk trading vehicle right now, until we can see some
signs that today's hope for a recovery in Chinese demand for raw materials (such
as copper) is more than a hope.

Full disclosure: I don't own shares of any of the companies mentioned in
this post in my personal portfolio. When in 2010 I started the mutual fund I
manage, Jubak Global Equity
Fund, I liquidated all my individual stock holdings and put the money into
the fund. The fund may or may not now own positions in any stock mentioned in
this post. The fund did own shares of Thompson Creek Metals as of the end of
June. For a full list of the stocks in the fund as of the end of June see the
fund's portfolio here.